Analysis Of Business Demography Using Markov Chains: An Application To Belgian Data

Executive Summary

This paper applies the theory of finite Markov chains to analyze the demographic evolution of Belgian enterprises. While other methodologies concentrate on the entry and exit of firms, the Markov approach also analyzes migrations between economic sectors. Besides helping to provide a fuller picture of the evolution of the population, Markov chains also enable forecasts of its future composition to be made, as well as the computation of average lifetimes of companies by branch of activity. The method is applied to Belgian data from the Crossroads Bank for Enterprises (CBE). To ensure compliance with Eurostat-OECD definitions, only 'Active' enterprises, i.e. enterprises with a positive turnover and/or at least one employee, are considered.